Lifestyle Communities Limited

New Site Acquisition to Aid Increased Product Portfolio:Lifestyle Communities Limited (ASX: LIC) develops, owns and manages affordable residential land lease communities. On 13 November 2019, LIC informed that it has executed a Contract of Sale to purchase a site in St Leonards, located on Victoria’s Bellarine Peninsula. The company expects a deal to be settled by the end of 2020, with construction anticipated to be commenced soon afterward. As a result of this acquisition, Lifestyle Communities’ portfolio will increase by approximately 170 home sites to 3,730, which includes sites in planning, development or under Management. In another announcement, the company informed about the decrease in interest of James Kelly and Associated Entities from a voting power of 11.55% to 10.12%.

FY19 Operating Highlights for 30 June 2019: LIC announced its full-year financial results, wherein the company reported total home settlement revenue of $119.27 million, up 19.1% on FY18 revenue of $100.12 million. Total management and other revenue amounted to $27.57 million as compared to $23.49 million in FY18.Net profit after tax came in at $55.06 million, up 4.1% in comparison to $52.90 million in the previous financial year. During the year, the company reported 337 new home settlements and 2,284 occupied home sites. The portfolio of LIC stood at 3,563 homes and home sites, and it made 53 resale settlements during FY19. The business reported 21.1% y-o-y growth in rental income to $20.5 million and cash deferred management fees at $4.2 million, down 3.5% on y-o-y basis. Cost of sales included $28.0 million for a share of the community infrastructure sold with each home. Gross profit from home settlements increased to $29.6 million due to a 19.1% increase in settlements revenue and better margins received from a change in project mix and the sale of bigger homes.During FY19, LIC acquired new sites at Plumpton and Tyabb and an additional land at Wollert North. 


FY19 Income Statement (Source: Company Reports)

Outlook:  As per the guidance issued by the Management, settlements in FY20 are expected to be within the range of 270 to 310. The settlements are dependent on the future approvals and construction commencement dates for Wollert, Kaduna Park, Plumpton and Tyabb, and market scenarios. The company expects deferred management fees (DMF) within the range of 60-80, subject to the availability of homes to sell. The Management highlighted that on account of higher DMF and rental annuities, dividend in FY20 is expected to increase.

Stock Recommendation: The stock of the company is trading at $8.060 with a market capitalisation of ~$849.95 million. At the current market price of $8.060, the stock is available at a price to earnings (P/E) multiple of 15.43x, which is higher than the industry median of 12.1x. Enterprise Value (EV) to Sales multiple of the company stands at 6.6x on TTM basis as compared to the industry median of 4.7x. It reported a higher EV/EBITDA multiple of 15.1x against the industry median of 12.6x indicating the stock to be overvalued. The stock has generated returns of 21.71% and 36.64% in the last three months and six-months, respectively. At the current market price, the stock is trading near the upper band of its 52-week trading range of $4.810 to $8.500. In FY20, the company began its operations with one less project than planned, due to a highly competitive property market in Victoria during the last 12 to 18 months. Receival of planning permits for new communities at Kaduna Park and Wollert North, also experienced delays. Considering the aforesaid facts, price movements, current trading levels and valuations, we recommend an “Expensive” rating on the stock at the current market price of $8.060, down 0.861% as on 13 November 2019.

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